Cash for Clunkers

[DolfanBob]

I just had this E-mailed to me. Wanted to see what you guys think.

From a real "Car Guy" out in Los Angeles, CA.
______________________________________________________________
SO...you took FEDZILLA up on its offer of $4500. dollars to trade in your old "Clunker" (interesting choice of words)?  Well, let's see who got the best of that "deal"...
 
If you traded in a clunker worth $3500, you got $4500 off for an apparent "savings" of $1000.  You could have gotten $3,500 if you had just traded the car in.  So you really are $1,000 ahead (depending on your clunker's value) at this point.  Not too bad...
 
However, you WILL have to pay taxes on the $4500 come April 15th (something that no auto dealer will tell you).  If you are in the 30% tax bracket, you will pay $1350 on that $4500. 
 
So, rather than save $1000, you will actually pay an extra $350. to the feds.  In addition, you traded in a car that was most likely paid for.  Now you have 4 or 5 years of payments on a car that you did not need, trading in a "clunker" that was costing you less to run than the payments that you will now be making. Even if you save $1,000. dollars a year in gas due to better mileage, you're still gonna be in the red for five years....hello?
 
But wait, it gets even better:  you also got ripped off by the dealer.  For example, the month before the "cash for clunkers" program started, every dealer here in LA was selling the Ford Focus with all the goodies including A/C, auto transmission, power windows, etc for $12,500. because competition was stiff due to poor sales from the stalled economy.
 
When "cash for clunkers" came along, they stopped discounting them  and instead sold them at the list price of $15,500.  So, you paid $3000 more than you would have the month before.  Honda, Toyota , and Kia played the same list price game that Ford and Chevy did.  Now let's do the math... 
 
 
You traded in a car worth:   $3500
You got a discount of:         $4500
                                           ---------
Net so far                           +$1000
But you have to pay:            $1350 in taxes on the $4500
                                               --------
Net so far:                          -$350  (that's minus...in the red)
And you paid:                     $3000 more than the car was selling for the month before
                                             ----------   
Net  Loss:                          -$3350
 
We could also add in the additional taxes (sales tax, state tax, dealer prep, etc.) on the extra $3000 that you paid for the car, along with the Five years of interest on the car loan; but let's just stop here while you kick yourself.  Suffice it to say that those costs will be much higher than any savings you get from "better mileage".
 
So who actually made out on the deal?  FEDZILLA collected taxes on the car along with taxes on the $4500 they "gave" you.  The car dealers made an extra $3000 or more on every car they sold along with the kickbacks from the manufacturers and the loan companies.  Manufacturers got to dump lots of cars they could not give away the month before.  Lots of good or repairable used cars got taken off the market, crushed and sold as scrap metal to (ready for this?) CHINA!  (Look it up...) And the poor consumer got saddled with even more debt that they cannot afford. 
 
FEDZILLA'S merry men (who promised that people making less than $250,000. would pay "not one red cent more in taxes") will make millions in new tax revenues after convincing Joe Consumer that he was getting $4500 in "free" money from the "government" In fact, Joe was giving away his $3500 car and paying an additional $3350 for the privilege.  Chicago politics gone global...with an agenda.

If you find errors in this math, please let me know...being a simple guy, I'm always willing to learn new things; and if you took "advantage" of the Clunkers deal, I have some swamp land down in Florida that's for sale...

[sgrizzle]

Here is a friend of mine:

Trade-in worth:        $2,000
Cash for Clunkers:   $3,500
Chrysler Match:       $3,500

So he got $7,000 off a vehicle instead of $2,000 which is better than any deal they did beforehand. In addition, there is no income tax on the rebate like you mentioned, that is ridiculous.

[Red Arrow]

Here is a friend of mine:

Trade-in worth:        $2,000
Cash for Clunkers:   $3,500
Chrysler Match:       $3,500

So he got $7,000 off a vehicle instead of $2,000 which is better than any deal they did beforehand. In addition, there is no income tax on the rebate like you mentioned, that is ridiculous.

I remember paying federal income tax a few years ago on an Oklahoma state income tax rebate even though I didn't itemize and therefore did not deduct my Oklahoma withholding from my previous year's federal tax. 

I won't be surprised if the $4500 is taxable income somewhere.

[sgrizzle]

I remember paying federal income tax a few years ago on an Oklahoma state income tax rebate even though I didn't itemize and therefore did not deduct my Oklahoma withholding from my previous year's federal tax. 

I won't be surprised if the $4500 is taxable income somewhere.

A. The rebate is paid to the dealer, not you.
B. It is a discount off of a vehicle, you receive nothing. Just like a regular vehicle trade-in.

[Townsend]

http://www.snopes.com/politics/taxes/clunkers.asp

Snopes.com take on it.

[sgrizzle]

http://www.snopes.com/politics/taxes/clunkers.asp

Snopes.com take on it.

All of the state taxes that might be owed (ie. if they tax the total value) would be paid when you get the tag. Further verification of no April 15 surprises.

[Red Arrow]

A. The rebate is paid to the dealer, not you.
B. It is a discount off of a vehicle, you receive nothing. Just like a regular vehicle trade-in.

Paid to the dealer on your behalf.  Just because you didn't handle the cash doesn't mean it wasn't a benefit for you.

Cash for Clunkers was a payment for a vehicle you already had.  The government bought your clunker, hopefully (for you) for more than it was worth making it a benefit.  Is it taxable? We'll find out.  On a normal trade-in, the dealer gets to sell your old vehicle for whatever they can get.

Snopes is blocked here at work so I can't see what they say until I get home.

[Conan71]

I doubt there would be a federal tax to pay.  Remains to be seen whether or not it will be treated as taxable income in Oklahoma.  I do believe the sales/excise tax is calculated on the MSRP or delivered price and does not deduct anything for trade-in to calculate the taxes so I doubt any taxes in relation to the purchase itself were reduced.

[Townsend]

http://www.cars.gov/faq

Is the credit subject to being taxed as income to the consumers that participate in the program?

NO. The CARS Act expressly provides that the credit is not income for the consumer.

Do I have to pay State or local sales tax on the amount of the CARS program credit?

MAYBE. The question of whether a consumer must pay State or local sales tax on the amount of the CARS program credit depends on the sales tax law of each State or locality. Consumers should review the law of their respective States or consult a tax advisor to answer this question.

[sgrizzle]

Paid to the dealer on your behalf.  Just because you didn't handle the cash doesn't mean it wasn't a benefit for you.

Cash for Clunkers was a payment for a vehicle you already had.  The government bought your clunker, hopefully (for you) for more than it was worth making it a benefit.  Is it taxable? We'll find out.  On a normal trade-in, the dealer gets to sell your old vehicle for whatever they can get.

Snopes is blocked here at work so I can't see what they say until I get home.

Again, this was like a trade-in except the dealer essentially sold it to the feds, not you.

Snopes said the only thing tax related that came as a surprise is that some states charge excise tax on the gross purchase price and not the net price after tradein/c4c.

We didn't pay taxes on the digital TV coupons and that was something we actually received.

[Red Arrow]

Again, this was like a trade-in except the dealer essentially sold it to the feds, not you.

Snopes said the only thing tax related that came as a surprise is that some states charge excise tax on the gross purchase price and not the net price after tradein/c4c.

We didn't pay taxes on the digital TV coupons and that was something we actually received.

It appears as though it will not be income taxed.

It is still not quite a normal trade in.  If your friend's clunker was worth $2000 and he bought a new car which allowed him to qualify for  $3500, you can be sure the dealer did not eat the $1500 difference.  The dealer should get $3500 from the government.  Therefore your friend benefited by $1500 courtesy of Uncle Sam. That's OK.  That's also the amout that would normally be considered taxable, in my opinion. Arriving at the real gain is probably the reason the law was written to exclude it from income tax.  Good move.  I don't know the specifics of the Chrysler $3500 match.  I'm sure it was part of the room the dealer had between their cost and MSRP, perhaps mandated by Chrysler Corp offices.   A good negotiator may have been able to get that even without a trade.  Maybe at a later date when other pressures were off.   I believe that your friend got a $1500 better deal than he could have otherwise gotten.  Good for him.

On a normal trade in if you get more than your car is worth, the dealer just subtracts that excess from any discount you may have otherwise been able to get.

[cannon_fodder]

We didn't pay taxes on the non-earned earned income tax credit.  Or the tax "rebate" GW borrowed money to hand out (how is it a rebate when you didn't pay in?).  Nor did we pay taxes on the energy efficient tax incentives.  We didn't get taxed on the hand outs for digital TV.  And we won't pay federal taxes on the clunkers handouts.

The next question:  will we get a rebate for buying newspapers and will our appliance handouts be taxed?

/tired of handouts

[Conan71]

I'm curious how much of a rebate Recyclemichael's wife got trading him in.

[RecycleMichael]

She got stuck with me...no car dealer would deal...now she is talking to the refridgerator guy...

[Townsend]

They say the money IS taxable so that $4,500 is not all that much money, plus the higher car payments your shacked with and the full insurance coverage that you would need on a new car, something that would not be needed on a older paid off car. I am wondering if that $8,000 the government gives to people to buy a house is taxable? I have not heard anything about that talked about. If the clunkers money is taxable I would guess the $8,000.00 to buy a home is also taxable too. Anyone know about that?

Read the rest of the thread.

For Christ's sake, read the thread before you post.

Read the thread...it will help you.

Read the F'ing thread.

The thread...read the thread.  Read the thread, read the thread, read the thread.